Rouble shakes Asian currencies

MOSCOW, Aug 17 (AFP) — President Boris Yeltsin cut short his holiday and dashed back to Moscow today for consultations with his Prime Minister Sergei Kiriyenko, after the government and the central bank announced that they could no longer defend the rouble at the current price.

And the possibility of political fallout from the economic meltdown remained high with Kiriyenko himself saying he "does not exclude" a Cabinet shake-up.

Russia’s bankrupt government caved in to tremendous pressure on its currency earlier today, announcing a de facto devaluation and debt repayment moratorium which sent markets into a tailspin.

The central bank raised the upper limit at which it is prepared to support the rouble to 9.5 to the greenback, while the lower limit was set at six. The corridor stood at 6.27-6.31 on Friday.

The government also declared a 30 day moratorium on repayment of foreign debt, suspended trading in short term domestic debt instruments and said that the bonds would be restructured into new debt instruments.

The announcements touched off further chaos on Russia’s financial markets, already spooked by weeks of devaluation speculation and months of fears that Russia could be next emerging market domino to topple.

In Singapore dealers said Asian stocks and currencies were hit by the de facto devaluation of the Russian rouble and fears the yen will sink deeper in the absence of central bank intervention.

The yen plunged to 146.85 against the dollar from Friday’s close of 144.75, dragging Japanese share prices 2.2 per cent lower and below the crucial 15,000 point level.

The 225 issue Nikkei stock average of the Tokyo stock exchange dropped 329.27 points to end at 14,794.66, brokers in Tokyo said.

As the weak yen took its toll on other Asian currencies and stocks, Moscow’s announcement of a de facto devaluation of the rouble triggered a flight to the safe-haven dollar.

Andy Tan, General Manager of Standard & Poor’s MMS here, said news of the de facto devaluation of the rouble, a key trading factor in Asian markets for about a week piled up the pressure on ailing Asian units.

"With Russia declaring a 90-day moratorium on debt payments, the market concern is that it may be repeated in economies like Indonesia, who may be tempted to do a similar programme," Tan said.

Trading was suspended on Rusian stock and currency markets this morning. Most brokers were too harried to comment. While one merely anticipated "a very substantial" decline in equity prices, which have already lost 70 per cent of their value in this year’s financial crisis.

Speculation of a rouble devaluation and debt default had reached hysterical proportions in recent weeks and investors are convinced that the government is all but bankrupt.

While today’s announcement stopped short of setting a new, devalued rouble peg against the dollar, it dramatically widened the corridor within which the central bank lets its currency fluctuate against the dollar.

The old corridor was set last November, when the government pledged to defend the rouble at around 6.2 to the dollar through 2000 with in a 15 per cent fluctuation corridor.

The government has insisted repeatedly that it would stick by its currency. Yeltsin said as recently as Friday that he would not devalue the rouble.

But today central bank Chairman Sergei Dubinin and Finance Minister Mikhail Zadornov said that the abrupt change in policy was aimed at helping production and growth in an economy languishing in the doldrums for months due to high interest rates and tight fiscal policies.

Vaghela joins morcha

NEW DELHI, Aug 17 (PTI) — The Rashtriya Loktantrik Morcha (RLM) today received a shot in the arm with Rashtriya Janata Party (RJP) leader Shankersinh Vaghela joining the front to strengthen opposition unity to dislodge the Vajpayee government.

The development comes a day after eight opposition parties, including the Congress, came together making the Srikrishna Commission report a rallying point to forge opposition unity in the search for an alternative government.

Announcing RJP’s joining the morcha at a function organised to inaugurate its party headquarters here, Mr Vaghela said the morcha had fulfilled the need for a strong third force. "Now Vajpayee government’s days are numbered," he remarked.

In their speeches, RLM president Mulayam Singh Yadav, Rashtriya Janata Dal chief Laloo Prasad Yadav, former Union Minister Buta Singh and a host of other leaders pledged to crush communal forces and came down heavily on the BJP-led coalition for rise in prices of essential commodities.

In a related development, Janata Party president Subramanian Swamy who had attended yesterday’s meeting convened by the RLM with the AIADMK leader Jayalalitha’s "consent", met Laloo Prasad Yadav at Bihar Nivas in the morning and discussed the latest political situation in the country in the light of AIADMK’s threat to review support to the Vajpayee government on the Cauvery issue.